Why Japanese Retailers Decided to Jump Into the Budget Airline Battle

Airlines across the world are trying to turn into retailers to boost profits. In Japan, retailers are instead jumping into the airline business.

A year after it ended its pursuit of the Japanese budget market, AirAsia is planning to begin a second attempt in the nation next year with the help of a trio of Japanese retailers. Rakuten, Japan’s largest online retailer, announced Tuesday that it will acquire an 18 percent stake in the new airline, which is expected to begin flying in the summer of 2015.

Rakuten is controlled by Japanese billionaire Hiroshi Mikitani, who spent $900 million in February to acquire the messaging service Viber and has a $100 million stake in Pinterest, a website where people pin photos and other digital flotsam. Mikitani and his wife control more than 23 percent of Rakuten’s shares. The company also runs an online travel business in Japan and the U.S. retail site, Buy.com, which it has rebranded.

Cosmetics and pharmaceutical firm Noevir and Alpen Group, a Japanese sporting goods maker, are also investing in the new carrier. AirAsia plans to raise about 7 billion yen ($69 million) for the new venture. A representative at Noevir’s U.S. headquarters in Irvine, Calif., said the company declined to discuss the airline, and Alpen Group could not be reached for comment.

The new airline would mark AirAsia Chief Executive Tony Fernades’s second attempt to break into Japan, the one market that has thus far eluded his successful track record as an airline entrepreneur. AirAsia’s joint venture with All Nippon Airways, called AirAsia Japan, dissolved last year when the Japanese airline bought out Fernades’s 33 percent stake and renamed the carrier Vanilla Air. ”We have not given up on the dream of changing air travel in Japan,” Fernandes told The New York Times last year.

The ANA-AirAsia joint venture never worked given different philosophies on how to approach the discount segment of the Japanese market. ANA executives argued that Japanese consumers demanded a higher, meticulous level of service that AirAsia could not provide—a service that meant higher costs. AirAsia, in turn, bristled at ANA’s fiscal approach about running a financially tight operation, the kind necessary for a successful low-cost airline.